Banking Crises Are Unpredictable but Knowable

Pedestrians walk by a Citibank branch office on July 16 in San Francisco, Calif. Citigroup has agreed to pay $590 million to settle a class-action shareholder lawsuit claiming that the bank failed to disclose exposure to subprime and other risky assets leading up to the financial crisis. Justin Sullivan/Getty Images

Commentary

The New York Community Bank (NYCB) crisis recalls the banking crisis of last March. Similar to what happened last year, crises always emerge suddenly, without clear symptoms beforehand. At the end of January 2023, NYCB’s stock price plummeted by over 30 percent in a day and continued to drop to 30 percent in a few days afterward. We cannot easily claim the U.S. market is inefficient (in terms of information flow), but the iron fact is almost nobody is aware of a crisis of this kind until the collapse takes place. This seems to be the intrinsic nature of a crisis.